UBS Agrees To Return $35 Million To Massachusetts Municipalities Holding "Frozen" Auction Rate Securities

Massachusetts has been a hotbed of interesting news and court decisions related to the subprime market meltdown, primarily due to the activity of the state attorney general and securities agency (see our prior posts here and here).

That trend continues with the announcement Wednesday that the Massachusetts attorney general obtained UBS' agreement to return $35 million to 17 municipalities and the Massachusetts Turnpike Authority in response to relating to claims that the investment bank misled them into buying auction-rate securities, which are often backed by residential mortgages. The attorney general's press release indicated the office is still reviewing possible penalties against UBS.

The market for auction rate securities dried up earlier this year. A large number of auctions failed because there were no bidders, and the large banks that in the past would buy the securities if an auction failed refused to step in given their own financial difficulties (see reports here and here).

A number of class action securities lawsuits against various parties have been filed in the wake of the problems with the market for auction rate securities, as detailed in the D&O Diary blog (here).